In Daniels’s speech honoring Hudson Institute founder Herman Kahn, Daniels differentiated himself from most national Republican leaders by endorsing a tax on imported oil. This idea contradicts two major GOP orthodoxies: opposition to any tax hikes and devotion to big oil. Politico’s report on the speech:

Daniels also suggested support for increasing gasoline taxes. Kahn wrote, in a passage Daniels read from Thursday, “One fully justifiable tax would be on imported oil. Any large importation of oil by the U.S. raises security problems. There are, in effect, external costs associated with importing oil that a tariff would internalize.

“Now, maybe that transgresses some philosophical viewpoint of yours,” Daniels told the well-heeled crowd of 250. “But to me, that’s an interesting point today, just as valid as the day he wrote it.

The need to reduce foreign oil consumption is more imperative now than when Kahn proposed the oil import fee in 1982. The United States imported less than one-third of its oil in 1982. Imports in 2009 totaled nearly two-thirds of oil consumption. And one in five barrels of oil consumed in the United States now comes from nations that the U.S. State Department classifies as “dangerous or unstable.” A fee on imported oil would help internalize some of the economic costs of this dependence, as Daniels noted in citing the Kahn quote from 30 years ago.

An oil import fee could raise revenue to reduce foreign oil consumption by investing in oil demand reduction programs. Such funds could also reduce the budget deficit—a top priority of congressional Republicans. A temporary, extremely modest $5 per barrel fee could raise $22 billion annually. This small levy would raise gasoline prices by just an estimated 5 cents per gallon—less than the gasoline price increase between the week of October 4 and October 10.

This miniscule increase in gasoline prices is too small to create much of an incentive to reduce driving. It would, however, make domestic oil slightly more price competitive with foreign oil. More importantly, the revenue could fund programs to replace some oil with public transportation, natural gas and electric vehicles, and other alternative fuels. These funds could also help reduce the deficit, and/or provide rebates to middle- and low-income families.

The proposal for a small fee on oil with proceeds invested into energy innovation is consistent with the proposals that I advance in The Climate Fix. But more importantly, Governor Daniels forward thinking (a trial balloon to be sure) and the CAP's willingness to respectfully discuss his ideas suggests that a sensible bipartisan discussion of energy policy is still possible in these hyper-politicized times. And that is good news whatever your politics happen to be.